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New Financial Scandal Could Hurt Both Arafat and Israel’s Labor Party

Those inclined to look on the bright side might say that Israeli-Palestinian cooperation is alive and kicking: Israelis and Palestinians joined ranks to make big money, until one of them woke up with a bad conscience.

The joint venture in question began in February 1997, when Palestinian Authority President Yasser Arafat transferred official P.A. funds from the Arab Bank in Ramallah to private accounts in Swiss banks.

The money was Palestinian, mostly customs and levies on products imported into the Palestinian Authority via Israel.

But the intermediaries were Israelis, who in return received generous commissions — millions of dollars, according to reports.

The key person was Yossi Ginossar, a former senior official in the Shin Bet security service, and his partner Ezrad Lev. Ginossar and Lev succeeded in opening the doors of Switzerland’s Lombard Odier Bank to the Palestinian money.

The cooperation continued until the summer of 2001, well into the Intifada.

Like some other former senior officers, Ginossar had been involved in business transactions between Israeli and Palestinian companies ever since the early days of Palestinian Authority rule under the Oslo peace accords. The Palestinians dubbed him “Mr. 5 Percent,” a reference to the commissions he earned on business deals.

The hidden Swiss accounts eventually grew to more than $300 million. The Israeli partners managed the accounts, though they were not authorized to make withdrawals.

But then, in August 2001, something unexpected happened: Mohammed Rashid, Arafat’s closest financial advisor, suddenly withdrew some $65 million from the account, which then couldn’t be traced.

Lev suspected the money was going to finance terrorist activities.

He decided that enough was enough, that there was no real control over the money and that it was politically unacceptable that Ginossar — whose extensive business ties had led Prime Ministers Yitzhak Rabin and Ehud Barak to use him as an unofficial emissary to the Palestinian Authority — should also be involved in controversial financial transactions with the Palestinians.

Lev, 42, went to the Ma’ariv newspaper and disclosed the secret deals Ginossar was involved in. He even charged that Ginossar had paid millions of dollars to Rashid to ensure his continued involvement in the accounts.

There was nothing new in the fact that the Palestinian Authority handles its money as if it was the private property of Arafat and his colleagues. At his own discretion, Arafat has allocated funds to various projects — including the financing of terrorist activities, as the Israel Defense Force learned from documents seized at Arafat’s Ramallah headquarters last spring.

Rampant corruption has enriched the Palestinian political elite, but it also has alienated the leadership from the masses — and helped opposition elements, including Hamas, gain in popularity.

What is new is the depth of Israeli involvement in the accounts — and the ways in which it undermined international pressure on Arafat to implement fiscal reforms and full financial accountability.

Earlier this year, that pressure forced Arafat to appoint Mohammad Fayyad, an American-trained economist, as his new finance minister.

Absent drastic measures to make his financial management more transparent, Arafat knew, the international community might cut off his money supply.

The exposure of the Swiss funds and their connection to Israel hasn’t helped Arafat’s already battered political stock — or that of the Israeli left that negotiated and, in some cases, benefited from the Oslo peace accords.

Ginossar, 55, came to Israel as a new immigrant from Vilnius at the age of 11.

After his military service he joined the Shin Bet, eventually becoming head of counter-espionage activities. He was forced to quit in the mid-1980s following the “Bus 300″ scandal, in which Shin Bet agents killed two Palestinian they had taken prisoner after the terrorists hijacked a bus, then tried to blame the killings on top army officers.

For a while Ginossar failed in his business activities. But the signing of the Oslo accords and the creation of the Palestinian Authority allowed him to develop good business connections with the Palestinians.

He became so influential behind the scenes that Rabin began sending Ginossar on confidential missions to Arafat, even when other negotiating channels appeared blocked.

Prime Minister Ariel Sharon thought of doing the same, until he realized that Ginossar — deeply involved in the July 2000 Camp David summit talks between Barak and Arafat — was too left wing for Sharon’s political taste. Sharon eventually chose his son Omri as his personal envoy to Arafat.

While the ultimate use of the funds in Arafat’s bank account is still unclear, the Ginossar scandal sheds light on the dubious character of financial relations between Israel and the Palestinian Authority.

Over the years, Israeli authorities approved the transfer of official P.A. funds to private accounts, though they knew the money could have been used instead to help hundreds of thousands of Palestinians suffering in the Palestinian territories.

The Israelis believed that financial interactions with the Palestinian Authority — even if not strictly kosher — ultimately would strengthen ties and lead to a peace agreement.

“They believed that the strengthening of the dictator would bring about a strong peace,” Israel’s housing and construction minister, Natan Sharansky, said this week. “The money which was designed to serve the Palestinian people went, with the knowledge of Israel’s governments, to the private bank accounts of Arafat.”

Barak used Ginossar’s services at Camp David, even though Attorney General Elyakim Rubinstein had warned him not to do so, fearing that Ginossar’s business ties to the Palestinians could create a possible conflict of interests.

Ginossar defended himself as the revelations about the Swiss account surfaced late last week, saying that Israel had taken advantage of his business contacts, not vice versa.

“I served the state” in political missions “voluntarily, and I made significant contributions not only to the security of Israel’s citizens, but also directly saving lives,” he said.

The exposure of the affair, just as the election campaign is kicking, was like a ripe fruit falling into Sharon’s hands.

“This is an invaluable gift for the election campaign of the Likud, worth more than 1,000 election slots,” analyst Aluf Benn wrote in the Ha’aretz newspaper. Like Sharon, the other Likud prime minister to serve in the post-Oslo period, Benjamin Netanyahu, also refrained from using Ginossar’s services.

Both can point to the affair as a foul product of the Oslo Accord. Lev, in his Ma’ariv interview, already supplied the ammunition: “I do not blame Yossi” Ginossar,” he said, “I blame the Israeli leadership, the premiers who operated him, although they knew that he had interests with the other side. The first who identified the problematics of Ginossar’s operation was the current premier and his son. They limited this operation and did not allow it to continue.”

Shortly after the story was published in Ma’ariv, Sharon instructed the Mossad to check whether the Swiss accounts were used to finance terrorism.

Naomi Blumenthal, deputy minister of infrastructure from Sharon’s Likud Party, demanded the establishment of a state inquiry commission that would examine not just the Ginossar affair but “all those who took part in the negotiations with the Palestinians.”

P.A. officials dismissed the allegations as a smear campaign against Arafat. But Israeli pundits predicted that the scandal would further weaken Arafat’s status among the Palestinians.

Hussein Sheik, secretary-general of Arafat’s Fatah movement in the West Bank, demanded a commission of inquiry “to bring to trial the corrupt people who hide away public money.”

Rashid claims Israel has deliberately used the affair to demonize Arafat in the eyes of the Palestinian public and prevent a smooth process of reform in the Palestinian Authority.

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